What are the Major Changes to Social Security in 2020?

Social Security supports millions of Americans, giving them vital benefits in retirement or if they are disabled. For many of those recipients, Social Security contributes most or all of their income.

Motley Fool’s recent article, “4 Must-Know Facts About Social Security for 2020,” says that to get as much as you can from Social Security, you need to understand how each year’s changes will impact you. With benefit checks, retirement age, maximum benefit calculations and Social Security payroll taxes, there’s quite a bit for people to monitor with Social Security in 2020. Let’s look at few big changes:

  1. Next year’s cost-of-living adjustment. Every year, Social Security gives those receiving benefits a cost-of-living increase in their monthly checks. The amount varies from year to year, based on inflation figures. The SSA recently announced that it would increase benefit checks by 1.6% at the start of 2020. This bump will impact seniors in different ways. The typical retired worker will see monthly benefits rise from $1,479 to $1,503. For couples receiving two benefit checks, the typical total will rise by $40 to $2,531 per month. If you’re receiving Social Security benefits based on a family member’s work history, you’ll also see increases. Widowed parents with two children will see $46 more per month ($2,934). Surviving spouses without eligible children will receive a $22 per month increase to $1,422, while the typical disabled worker will see checks go up $20 to $1,258 per month.
  2. Early retirees in 2020 will see a higher full retirement age. The SSA figures your benefits using a formula that anticipates that you’ll claim Social Security when you reach full retirement age. If you claim earlier, then you’ll receive less than if you had waited. However, for those turning 62 in 2020, full retirement age will be slightly higher than it was for those turning 62 in 2019. Those born in 1958 will have a full retirement age of 66 and eight months—two months older than it was for people who were born in 1957 and reached 62 in 2019. Thus, 2020’s 62-year-olds will take a 28.33% reduction in their monthly payment, compared to what they’d get at full retirement age. That’s a little more than the 27.5% reduction that applied to 2019’s 62-year-olds.
  3. High earners can anticipate a larger maximum Social Security benefit. If you retire in 2020 and qualify for the maximum benefit, you’ll see a bigger check than those who retired this year. If you work to full retirement age before collecting benefits, your maximum amount for Social Security benefits will be $3,011. That’s an increase of $150 from 2019.

However, not every increase will be that large, because receiving the maximum depends significantly on exactly when you elect to retire and take benefits. For those claiming Social Security at 62, the maximum monthly benefit will go up $56 to $2,265. Those retiring at 65 will see a $100 increase to $2,857 per month. However, for those retiring at age 70, the increase will be minimal, increasing only $20 to $3,790 per month. Even if you end up short of the absolute maximum, those earning higher incomes can generally expect to see a boost to what they’ll receive.

  1. High-income workers can plan on paying more in Social Security taxes. Payroll taxes are the main source of revenue for Social Security, and the maximum Social Security payroll tax is going up. In 2020, $4,800 more in earnings will be subject to payroll tax, maxing out at $137,700. Between the 6.2% employee portion and the matching 6.2% employers have to pay, a total of 12.4% of your earnings will be taken by federal government.

Those earning in excess of $137,700, will have their withholding increase by $297.60. Self-employed workers will see their maximum taxes rise by $595.20. However, most workers won’t see any change at all, because typical Americans earn far less than $137,700, and the same 6.2% rate will continue to apply on total earnings below that amount.

Reference: Motley Fool (October 27, 2019) “4 Must-Know Facts About Social Security for 2020”

When Should I Start Looking into Long-Term Care?

You can bet that you won’t need long-term care in your lifetime, but it’s not a sure thing: about 70% of seniors 65 and older require long-term care at some point. That could be just a few months with a home health aide or it could mean a year (or more) of nursing home care. You can’t know for sure. However, without long-term care insurance, you run the risk that you’ll be forced to cover a very large expense on your own.

The Motley Fool’s recent article, “75% of Older Americans Risk This Major Expense in the Future,” says many older workers are going into retirement without long-term care coverage in place. In a recent Nationwide survey, 75% of future retirees aged 50 and over said they that don’t have long-term care insurance. If that’s you, you should begin considering it, because the older you get, the more difficult it becomes to qualify, and the more expensive it becomes.

Long-term care insurance can be costly, which is why many people don’t buy it. However, the odds are that your policy won’t be anywhere near as expensive as the actual price for the care you could end up needing. That’s why it’s important to look at your options for long-term care insurance. The ideal time to apply is in your mid-50s. At that age, you’re more likely to be approved along with some discounts on your premiums. If you wait too long, you’ll risk being denied or seeing premiums that are prohibitively expensive.

Note that not all policies are not the same. Therefore, you should look at what items are outside of your premium costs. This may include things such as the maximum daily benefit the policy permits or the maximum time frame covered by your policy. It should really be two years at a minimum. There are policies written that have a waiting period for having your benefits kick in and others that either don’t have one or have shorter time frames. Compare your options and see what makes the most sense.

You don’t necessarily need the most expensive long-term care policy available. If you’ve saved a good amount for retirement, you’ll have the option of tapping your IRA or 401(k) to cover the cost of your care. The same is true if you own a home worth a lot of money, because you can sell it or borrow against it.

It’s important to remember to explore your options for long-term care insurance, before that window of opportunity shuts because of age or health problems. Failing to secure a policy could leave you to cover what could be a devastatingly expensive bill.

Reference: Motley Fool (September 23, 2019) “75% of Older Americans Risk This Major Expense in the Future”

Is Medicare Coverage Free?

Medicare has a variety of expenses—including premiums, copays and deductibles. CNBC’s recent article, “Here’s what you should know about Medicare costs if you’re nearing age 65,” found that half of respondents in a recent poll by consumer website eligibility.com, said they believe Medicare is free.  If you fail to sign up on time, you may face penalties for the rest of your life.

Fidelity Investments estimates that the average male-female couple will spend at least $285,000 on health care in retirement. The items not covered by Medicare—dental, basic vision, over-the-counter medicines, long-term care—would be in addition to that amount.

If you have at least a 10-year work history, you pay no premiums for Medicare Part A. This will cover hospital stays, skilled nursing, hospice, and some home health services. However, Part A has a deductible of $1,364 per benefit period and some caps on benefits. Part B—which covers outpatient care and medical supplies—has a standard monthly premium of $135.50 (in 2019). Higher earners pay more. This part has a $185 deductible (for 2019). After it’s satisfied, you typically pay 20% of covered services.

Those parts of Medicare don’t cover prescriptions, so a Part D drug plan is needed.

You can get a separate plan to use with original Medicare, or you can enroll in an Advantage Plan (Part C). This plan usually has prescription drug coverage. If you go with this, your Parts A and B benefits also will be delivered through the insurance company offering the Advantage Plan.

The average cost for Part D coverage in 2019 is $32.50 per month, according to the Centers for Medicare and Medicaid Services. However, high earners pay extra for their premiums. The deductible for 2019 is $415.

If you accessed your Social Security benefits before age 65, you’ll automatically be signed up for original Medicare. A month or two before you turn 65, you’ll be automatically enrolled, and your card will be delivered in the mail. You’ll see your Social Security check decreased by the cost of the Part B premium.

If you haven’t yet used Social Security, you must enroll proactively. There’s a seven-month enrollment period that begins three months before your birthday month and ends three months after it. If you have insurance through an employer when you reach age 65, you may be able to wait to enroll in Medicare without a penalty.

Even if you don’t take medicine right now, at least sign up for the cheapest drug plan just so you don’t face a penalty. This is because if you don’t enroll in Part B when you’re supposed to, you’ll see a 10% penalty for each year that you should’ve been enrolled. The amount would be in addition to your monthly premium. Part B enrollment isn’t required, if you have medical coverage from your job.

As far as Part D, the penalty for not enrolling when you were first eligible is 1% for every month that you could have been signed up—unless you have qualifying coverage through an employer’s plan.

Many people couple their original Medicare benefits with a supplemental policy—known as Medigap—to help cover out-of-pocket costs like deductibles and coinsurance. However, you can’t pair a Medigap policy with an Advantage Plan.

If you select an Advantage Plan, there may be limited coverage for dental and vision.

Reference: CNBC (August 29, 2019) “Here’s what you should know about Medicare costs if you’re nearing age 65”

What Changes Will Be Made to Social Security This Year?

While Social Security now delivers benefit checks to more than 63 million people every month, the program is primarily designed to provide a financial foundation for our nation’s retired workers. Nearly 45 million retired workers (70% of all beneficiaries) receive a benefit check monthly, with more than 60% of these seniors expecting their payout to make up at least half of their income.

Motley Fool’s recent article, “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income” explains that with the relative importance of Social Security, it should come as no shock that the second week of October holds considerable importance to these tens of millions of Americans. That’s because it’s when the Social Security Administration (SSA) announces changes to the program for the upcoming year. Any changes could directly affect what beneficiaries are paid on a monthly basis. These changes can also affect non-retirees who aren’t getting a Social Security benefit Let’s look at some of these changes.

  1. COLA. The most important figure in the October announcement from the Social Security Administration is the cost-of-living adjustment (COLA). Social Security’s COLA is measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The average monthly CPI-W reading from the third quarter of the current year (July through September) is compared to the average monthly CPI-W reading from the third quarter of the previous year. If the average figure has risen from the previous year, then beneficiaries receive a “raise” that’s commensurate with the percentage increase year over year, rounded to the nearest 0.1%.
  2. Withholding thresholds. Early claimants who haven’t hit their full retirement age but are currently (or expected to begin) taking benefits, will be subject to the retirement earnings test. This test allows early filers to earn up to a certain amount of money, before the SSA is allowed to withhold a portion, or all, of their benefit. For those who won’t reach their full retirement age in 2019, $1 in benefits can be withheld for every $2 in earnings above $17,640 ($1,470 a month). For those who’ll reach their full retirement age this year but have yet to do so, are allowed to earn $46,920 before the SSA begins withholding $1 in benefits for every $3 in earnings above the limit. Note that these withheld benefits aren’t lost forever, because you get them back in the form of a higher monthly payout when you reach your full retirement age.
  3. Maximum monthly payout. If you’re currently claiming a retired worker benefit and have made a good deal of money on an annual basis over your working career, there’s a chance that you’ll be able to net more in monthly payouts in 2020. There’s a cap on the maximum monthly payout at full retirement age. In 2019, no individual at their full retirement age can take home more than $2,861 per month, even if they made millions of dollars each year throughout their working career.
  4. Disability income thresholds. Even though 7 of 10 program recipients are retired workers, about 10 million people each month also get a check from Social Security Disability Insurance (SSDI). Approximately 8½ million are disabled workers, and the rest are spouses or children of these disabled workers. If the average CPI-W reading does increase on a year-over-year basis from the previous year (which appears likely), these SSDI income thresholds for the disabled and legally blind should go up a little in 2020.
  5. A warning to the wealthy. Lastly, Social Security’s changes for 2020 won’t just impact those receiving a benefit. Wealthy workers can also anticipate paying more into the program, provided that inflation rises on a year-over-year basis, as measured by the CPI-W.

Reference: Motley Fool (July 28, 2019) “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income”

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